UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1997
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number: 0-7445
DATRON SYSTEMS INCORPORATED
- -----------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 95-2582922
- ------------------------------- ------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
304 Enterprise Street, Escondido, California 92029-1297
- ------------------------------------------------------
(Address of principal executive offices) (zip code)
(760) 747-3734
- ---------------------------------------------------
(Registrant's telephone number, including area code)
(Former name, former address and formal fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period
that the registrant was required to file such reports), and (2) has
been subject to such filing requirements for the past 90 days.
[ X ] Yes [ ] No
APPLICABLE ONLY TO ISSUERS INVOLVED IN BANKRUPTCY
PROCEEDINGS DURING THE PRECEDING FIVE YEARS
Indicate by check mark whether the registrant has filed all documents
and reports required to be filed by Sections 12, 13 or 15 (d) of the
Securities Exchange Act of 1934 subsequent to the distribution of
securities under a plan confirmed by a court.
[ ] Yes [ ] No
APPLICABLE ONLY TO CORPORATE ISSUERS:
Indicate the number of shares outstanding of each of the issuer's
classes of common stock as of the latest practicable date.
As of July 25, 1997, the Registrant had only one class of common
stock, par value $0.01, of which there were 2,665,416 shares outstanding.
<PAGE>1
PART I -- FINANCIAL INFORMATION
Item 1. Financial Statements.
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED BALANCE SHEETS
(In thousands)
June 30, March 31
1997 1997
-------- --------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash $790 $1,072
Accounts receivable, net 9,496 17,896
Inventories 14,767 14,309
Deferred income taxes 2,788 2,788
Prepaid expenses and other current assets 1,491 1,168
-------- --------
Total current assets 29,332 37,233
Property, plant and equipment, net 11,671 12,030
Goodwill, net 5,800 5,851
Investment 1,113 1,113
Other assets 243 249
-------- --------
Total assets $48,159 $56,476
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $4,123 $7,647
Accrued expenses 2,757 3,103
Customer advances 2,055 744
Income taxes payable 194 194
Current portion of restructuring reserve 789 789
-------- --------
Total current liabilities 9,918 12,477
Long-term debt 3,900 8,900
Restructuring reserve 191 435
Deferred income taxes 2,056 2,056
-------- --------
Total liabilities 16,065 23,868
-------- --------
Stockholders' equity:
Preferred stock -- par value $0.01; authorized
2,000,000 shares, none issued or outstanding --- ---
Common stock -- par value $0.01; authorized
10,000,000 shares, 3,063,937 shares issued
in June and March 31 31
Additional paid-in capital 10,595 10,602
Retained earnings 23,869 24,417
Treasury stock, at cost; 399,521 and 404,521
shares in June and March, respectively (2,157) (2,198)
Stock option plan and stock purchase plan notes rec (244) (244)
-------- --------
Total stockholders' equity 32,094 32,608
-------- --------
Total liabilities and stockholders' equity $48,159 $56,476
======== ========
See notes to consolidated financial statements.
</TABLE>
<PAGE>2
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands, except per-share amounts)
Three Months Ended
June 30,
1997 1996
------------------
<S> <C> <C>
Net sales $10,341 $12,457
Cost of sales 7,986 9,001
------------------
Gross profit 2,355 3,456
Selling, general and admin. 2,748 2,731
Research and development 389 558
------------------
Operating (loss) income (782) 167
Interest expense (118) (117)
Other expense (6) ---
------------------
(Loss) income before income taxes (906) 50
Income taxes (benefit) (358) 21
------------------
Net (loss) income ($548) $29
==================
Net (loss) income per share ($0.21) $0.01
==================
Weighted average number of
common and common equivalent
shares outstanding 2,664 2,694
==================
See notes to consolidated financial statements.
</TABLE>
<PAGE>3
<TABLE>
<CAPTION>
DATRON SYSTEMS INCORPORATED
CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited)
(In thousands)
Three Months Ended
June 30,
1997 1996
--------- ---------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net (loss) income ($548) $29
Adjustments to reconcile net (loss) income to net
cash provided by (used in) operating activities:
Depreciation and amortization 693 734
Restructuring (244) (537)
Changes in operating assets and liabilities:
Accounts receivable 8,400 934
Inventories (458) (481)
Prepaid expenses and other assets (321) 547
Accounts payable and accrued expenses (3,870) (2,623)
Customer advances 1,311 (1,682)
Income taxes payable --- 13
--------- ---------
Net cash provided by (used in) operating activities 4,963 (3,066)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment (279) (111)
Purchase of investment --- (223)
--------- ---------
Net cash used in investing activities (279) (334)
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
(Decrease) increase in long-term debt (5,000) 2,200
Stock options exercised 34 256
--------- ---------
Net cash (used in) provided by financing activities (4,966) 2,456
--------- ---------
(DECREASE) IN CASH (282) (944)
Cash at beginning of period 1,072 1,393
--------- ---------
CASH AT END OF PERIOD $790 $449
========= =========
See notes to consolidated financial statements.
</TABLE>
<PAGE>4
Datron Systems Incorporated
Notes to Consolidated Financial Statements (Unaudited)
1. Basis of Presentation
---------------------
The unaudited consolidated financial statements included herein contain
the accounts of Datron Systems Incorporated and its wholly owned
subsidiaries (the "Company") and have been prepared in accordance with
the rules and regulations of the Securities and Exchange Commission.
Certain information and footnote disclosures normally included in
financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to such
rules and regulations. It is suggested that these financial statements
be read in connection with the financial statements and notes thereto
included in the Company's annual report on Form 10-K for the fiscal year
ended March 31, 1997.
In the opinion of the Company, the accompanying unaudited financial
statements contain all adjustments, consisting only of normal recurring
adjustments, unless otherwise stated, which are necessary to present
fairly its financial position at June 30, 1997 and the results of its
operations and its cash flows for the periods presented. Results of
operations for the periods presented herein are not necessarily
indicative of what results will be for the entire fiscal year. The
balance sheet at March 31, 1997 has been derived from audited financial
statements.
2. (Loss) Income per Share
-----------------------
Shares used in computing (loss) income per share include the weighted
average of common stock outstanding plus equivalent shares issuable
under the Company's stock option plans when such amounts are dilutive.
In February 1997, the Financial Accounting Standards Board issued SFAS
No. 128, Earnings Per Share ("EPS"). This statement requires
presentation of income per share to reflect both "Basic EPS" as well as
"Diluted EPS" on the face of the income statement. In general, Basic
EPS excludes dilution created by stock equivalents and is a function of
the weighted-average number of common shares outstanding for the period.
Diluted EPS reflects potential dilution created by stock equivalents as
if such equivalents are converted into common stock and is calculated in
substantially the same manner as Fully Diluted EPS illustrated in
Accounting Principles Board ("APB") Opinion No. 15, "Earnings Per
Share."
The Company will be required to adopt the new method of reporting income
per share in the three-month period ended December 31, 1997. Based on
the Company's existing capital structure, the anticipated results of
implementing SFAS No. 128 would reflect income per share in materially
the same manner as currently reported.
3. Accounts Receivable
-------------------
At June 30, 1997 and March 31, 1997, accounts receivable were as
follows:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
----------- -----------
<S> <C> <C>
Billed $ 5,294,000 $14,019,000
Unbilled 4,419,000 4,103,000
----------- ----------
Subtotal 9,713,000 18,122,000
Allowance for
doubtful accounts (217,000) (226,000)
---------- -----------
Total $9,496,000 $17,896,000
========== ===========
</TABLE>
<PAGE>5
4. Inventories
-----------
At June 30, 1997 and March 31, 1997, inventories were as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
----------- ------------
<S> <C> <C>
Raw materials $ 9,329,000 $ 9,316,000
Work-in-process 3,776,000 2,753,000
Finished goods 1,662,000 2,240,000
----------- -----------
Total $14,767,000 $14,309,000
=========== ===========
</TABLE>
Inventories are presented net of allowances for obsolescence of
$1,350,000 at June 30, 1997 and March 31, 1997.
5. Property, Plant and Equipment
-----------------------------
At June 30, 1997 and March 31, 1997, property, plant and equipment was
as follows:
<TABLE>
<CAPTION>
June 30, March 31,
1997 1997
------------ ------------
<S> <C> <C>
Land and buildings $ 8,529,000 $ 8,529,000
Machinery and equipment 14,728,000 14,590,000
Furniture and office
equipment 1,443,000 1,443,000
Leasehold improvements 820,000 815,000
Construction-in-process 177,000 66,000
----------- ----------
Subtotal 25,697,000 25,443,000
Accumulated depreciation and
amortization (14,026,000) (13,413,000)
----------- -----------
Total $11,671,000 $12,030,000
=========== ============
</TABLE>
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.
Datron Systems Incorporated and its wholly owned subsidiaries (the
"Company") report operations in two business segments: Antenna and
Imaging Systems, and Communication Products and Services. The Antenna
and Imaging Systems business segment designs and manufactures
specialized satellite communication systems, subsystems and antennas
that are sold worldwide to commercial and governmental customers,
including the U.S. Department of Defense (DoD). This segment also sells
remote sensing satellite earth stations to worldwide commercial,
scientific and military organizations. In fiscal 1996, this segment
introduced the DBS-3000, a mobile satellite television reception system
for recreational vehicles and long-haul trucks. This system was the
Company's first consumer product. Several additional direct broadcast
satellite ("DBS") antenna products were introduced in fiscal 1997. The
Communication Products and Services business segment designs,
manufactures and distributes high frequency and very high frequency
radios and accessories for worldwide military and civilian purposes.
This Management's Discussion and Analysis of Financial Condition and
Results of Operations contains certain forward-looking statements.
Actual results could differ materially. Reference is hereby made to the
statement of Investment Considerations contained in Part I, Item 1 of
the Company's Form 10-K, which is available from the Company upon
request.
<PAGE>6
Results of Operations
- ---------------------
Net loss for the first quarter of fiscal 1998 was $548,000, or $0.21 per
share, compared with net income of $29,000, or $0.01 per share, in the
first quarter of fiscal 1997. Net sales in the first quarter of fiscal
1998 were $10,341,000, a 17% decrease from first quarter sales last
fiscal year of $12,457,000. The decrease in sales was primarily due to
lower sales of radio products, military antennas and DBS antenna
products. The net loss was due to lower gross profits on the lower
sales, partially offset by lower product development expenses.
Operating results for each business segment were as follows:
Antenna and Imaging Systems
- ---------------------------
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $7,219,000 $8,384,000
========== ==========
Gross profit $1,359,000 $2,094,000
========== ==========
Operating (loss) income ($342,000) $4,000
========== ==========
</TABLE>
Sales of Antenna and Imaging Systems products decreased 14% in the first
quarter of fiscal 1998 compared with the first quarter of fiscal 1997.
The decrease was primarily due to lower sales of military and DBS
antenna products.
Gross profit percentage on sales of Antenna and Imaging Systems products
was 18.8% in the first quarter of fiscal 1998 compared with 25.0% in the
first quarter last fiscal year. The decrease was primarily due to
higher engineering costs on military antenna contracts.
Operating loss percentage from sales of Antenna and Imaging Systems
products was 4.7% in the first quarter of fiscal 1998 compared with
operating income of 0.0% in the first quarter last fiscal year. The
decrease resulted from lower gross profits, partially offset by lower
product development expenses.
Communication Products and Services
- -----------------------------------
<TABLE>
<CAPTION>
Three Months Ended
June 30,
1997 1996
---------- ----------
<S> <C> <C>
Net sales $3,122,000 $4,073,000
========== ==========
Gross profit $996,000 $1,362,000
========== ==========
Operating (loss) income ($87,000) $555,000
========== ==========
</TABLE>
Sales of Communication Products and Services decreased 23% in the first
quarter of fiscal 1998 compared with the first quarter of fiscal 1997.
The decrease in sales was due to low order bookings of radio products
resulting primarily from delays in new product development and
introduction.
Gross profit percentage on sales of Communication Products and Services
was 31.9% in the first quarter of fiscal 1998 compared with 33.4% in the
first quarter last fiscal year. The decrease was primarily due to
inefficiencies resulting from the low level of sales in the recent
quarter.
Operating loss percentage from sales of Communication Products and
Services was 2.8% in the first quarter of fiscal 1998 compared with
operating income of 13.6% in the first quarter last fiscal year. The
decrease resulted from higher administrative and product development
expenses, lower gross profits and from the low level of sales in the
recent quarter.
<PAGE>7
Consolidated expenses were as follows:
Selling, general and administrative expenses were $2,748,000 in the
first quarter of fiscal 1998, a 1% increase compared with first quarter
of fiscal 1997 expenses of $2,731,000. The increase resulted from
higher administrative expenses being partially offset by lower selling
expenses.
Research and development expenses were $389,000 in the first quarter of
fiscal 1998 compared with $558,000 in the first quarter last fiscal
year. The 30% decrease was due to significantly lower spending on
development programs for mobile DBS television products, partially
offset by increased spending on development programs for new radio
products.
Order backlog at June 30 was as follows:
<TABLE>
<CAPTION>
1997 1996
----------- -----------
<S> <C> <C>
Antenna and Imaging Systems $25,906,000 $22,690,000
Communication Products
and Services 4,793,000 2,576,000
----------- -----------
Total $30,699,000 $25,266,000
=========== ===========
</TABLE>
The 14% increase in Antenna and Imaging Systems backlog at June 30, 1997
compared with June 30, 1996 resulted primarily from higher order
bookings for remote sensing systems. This segment's first quarter
fiscal 1998 order bookings were $20.0 million, of which over $11 million
were for remote sensing systems.
The 86% increase in Communication Products and Services backlog at June
30, 1997 compared with June 30, 1996 was primarily due to improved order
bookings in the fourth fiscal quarter ended March 31, 1997.
Liquidity and Capital Resources
- -------------------------------
At June 30, 1997, working capital was $19,414,000 compared with
$24,756,000 at March 31, 1997, a decrease of $5,342,000 or 22%. Major
changes affecting working capital during this period were the following:
accounts receivable decreased $8,400,000 due to good collections;
inventories increased $458,000 primarily to meet production requirements
for new antenna orders; accounts payable and accrued expenses decreased
$3,870,000; and customer advances increased $1,311,000. The Company's
cash position at June 30, 1997 was $790,000 compared with $1,072,000 at
March 31, 1997, a decrease of 26%. At June 30, 1997, the Company had
borrowed $3,900,000 in term debt from its bank to meet operating cash
requirements. These borrowings represent a 56% decrease in term debt
from the $8,900,000 of borrowings at March 31, 1997.
Capital equipment expenditures were $279,000 during the first three
months of fiscal 1998 compared with $111,000 in the first three months
last fiscal year. Although the Company anticipates expenditures for
capital equipment will be higher in fiscal 1998 than they were in fiscal
1997, there were no material commitments for capital expenditures at
June 30, 1997.
At June 30, 1997, the Company had a $19,500,000 committed revolving line
of credit with its bank, of which up to $12,000,000 may be used for the
issuance of letters of credit and up to $10,500,000 may be used for
direct working capital advances provided that total credit extended does
not exceed $19,500,000. The Company is in negotiations with its bank to
amend the working capital and letter of credit sublimits and to extend
the maturity date of the credit agreement. The Company believes that
its existing working capital, anticipated future cash flows from
operations and available credit with its bank are sufficient to finance
presently planned capital and working capital requirements.
<PAGE>8
PART II -- OTHER INFORMATION
Item 2. Changes in Securities.
Pursuant to a business loan agreement with a bank, the Company must
comply with certain financial covenants. The agreement also prohibits
the Company from declaration or payment of dividends or other
distributions on the Company's stock, except under certain conditions
specified in the agreement. The Company is in compliance with both
requirements.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits:
None.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed during the quarter.
<PAGE>9
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
DATRON SYSTEMS INCORPORATED
Date July 30, 1997 By: /s/ WILLIAM L. STEPHAN
Vice President and Chief
Financial Officer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 30, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> MAR-31-1998
<PERIOD-END> JUN-30-1997
<CASH> 790
<SECURITIES> 0
<RECEIVABLES> 9,713
<ALLOWANCES> 217
<INVENTORY> 14,767
<CURRENT-ASSETS> 29,332
<PP&E> 25,697
<DEPRECIATION> 14,026
<TOTAL-ASSETS> 48,159
<CURRENT-LIABILITIES> 9,918
<BONDS> 0
0
0
<COMMON> 31
<OTHER-SE> 32,063
<TOTAL-LIABILITY-AND-EQUITY> 48,159
<SALES> 10,341
<TOTAL-REVENUES> 10,341
<CGS> 7,986
<TOTAL-COSTS> 7,986
<OTHER-EXPENSES> 3,143
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 118
<INCOME-PRETAX> (906)
<INCOME-TAX> (358)
<INCOME-CONTINUING> (548)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (548)
<EPS-PRIMARY> (0.21)
<EPS-DILUTED> (0.21)
</TABLE>
